The Wheel WorldDieter Zetsche of Daimler and Robert Lutz of GM talk about how to reduce the thirst for gasoline -- and how not to

March 24, 2008; Page R4

How much of a financial sacrifice will consumers make to buy environmentally friendly, "green" cars? And why haven't diesel engines caught on in the U.S. the way they have in Europe?

Daimler AG Chairman Dieter Zetsche and General Motors Corp. Vice Chairman Robert A. Lutz discussed these and other issues with The Wall Street Journal's Jeffrey Ball. Here are edited excerpts from that discussion.

JEFFREY BALL:I remember talking to people at both your companies [years ago] about fuel economy, and everyone said that it ranked far below cup holders on the list of what mattered to people. I also remember people saying that $2.50 gasoline would change that. Well, we're now beyond $2.50 gasoline. Has it changed it? What are you seeing in the market?

DIETER ZETSCHE: We are not seeing any significant changes of our mix or of our engine types within one name plate. What we do see is the tremendous success of the [small] Smart car, which we launched in the U.S. in January and where the demand is really blowing all of our expectations by far.

ROBERT A. LUTZ: What we're seeing is there is a portion, a very narrow portion of the population, that will make a financial sacrifice to be green. But I don't think we can count on the majority of the American public to make a financial sacrifice, or make an uneconomic decision. So I think even as gasoline goes to $4 a gallon, you're still going to see people doing the calculation. How much more do I have to pay for a hybrid system? Most people, not the ecologically committed, but most normal people are going to take a look at how much more am I paying for this fuel-saving technology and will I be able to amortize it over the life of the vehicle?

Where we're seeing we have reached the pain threshold is with the Duramax diesel engine, in the full-size pickup trucks. To meet the latest emission regulations, we are now forced to charge $11,000 for the diesel option, and that is putting a kink in diesel sales, and a lot of people are opting for the gas engine again.

To provide an economic incentive to people to buy these much higher-technology vehicles that are going to be required to meet the CAFE [Corporate Average Fuel Economy] mandates, the customer has to be put in the equation. That means that at some point, fuel prices have to rise. I think that without an economic incentive, we are not going to see a wholesale shift in demand of vehicles.
__________________________________________________ ________________

MR. BALL:There's been a long-running discussion in Detroit about the safety of the small car, and the debate has always been essentially blood versus oil. Do you have to sacrifice lives for the sake of fuel economy?

MR. ZETSCHE: Well, obviously, the Smart is in the market in Europe, and there are no statistics that would support [the idea] that you are less safe in the Smart than you are in any kind of vehicle. And there is no evidence that you would trade fuel efficiency and space efficiency against your health or your life.

MR. LUTZ: The days when some cars were safe, and other cars were not safe, are long behind us. If a vehicle is registered for sale in any developed market of the world, it is going to be an extremely safe vehicle and it is going to be much, much harder to sustain a life-threatening injury than it was, say, 10 years ago.
__________________________________________________ ________________

MR. BALL:In Europe, diesel accounts for, what, nearly half the passenger-car market? In the U.S., it's a negligible percentage except for in the truck market. There's all this discussion in this country about saving oil and reducing carbon emissions, and diesel is 30% more efficient or so than a comparable gasoline engine typically. Yet, we're talking about fuel cells and alternative fuels that require new infrastructure.

Why is it such a tough sell for diesel in this country? And second of all, despite that, why does Daimler feel like it's a good bet to roll out a diesel car, even in California, now?

MR. ZETSCHE: This country should be ready for diesel, because you have a lot of towns or you have speed limits and you have all these SUVs. All of that calls for high torque at low RPM, and that's a diesel. [As for why] diesel hasn't been popular here: For a period of time, there were some diesels that were not too great. And on top of that, diesel fuel is more expensive here than gasoline, which is not because of production, but because of capacity. This could be changed easily with some more capacity being installed for diesel.

The Government's Role

MR. BALL:What should government be doing that it's not doing?

MR. LUTZ: Well, to make the biggest environmental impact and displace as much petroleum as quickly as possible, and drastically reduce CO2 creation in the operation of motor vehicles, and create the least disruption to America's driving habits, there's only one technology that will get all of that quickly and at very low cost per car. And that is a conversion to basically bioethanol.
Better corn strains are being developed. They're developing corn with a shorter growing season, which was going to permit shifting the Corn Belt way to the north. I would point out that vast majority of corn acreage in the United States is still not producing corn. It's getting $500 a year per acre not to plant corn.

So I think that people who say, well, the ethanol industry is taking food from the mouths of babies and it's driving tortilla prices up -- I think these are highly suspect conclusions. General Motors is the world's largest producer of ethanol-capable vehicles. We produce over one million a year. We've got 4.5 million on the road and constantly growing. We've committed to doing 50% of our vehicles to be E-85 [85% ethanol and 15% gasoline] capable, and it's only about $150 per car.

If General Motors, Ford and Chrysler, if that whole ethanol-capable fleet were actually using ethanol by, say, 2012, 2015, we would save about 18 billion gallons of petroleum-based gasoline a year. If all producers ran on E-85, we'd save about 33 billion gallons of gasoline per year, and of course, drastically reduce the imported portion.

And the $150 cost per vehicle is really trivial compared to the mild hybrid systems, heavy hybrid systems, plug-in hybrid systems, clean diesels and so forth that will be required to get to the 35 miles per gallon using conventional gasoline technology.

Raising Fuel Mileage

MR. BALL:The oil industry is arguing for tougher CAFE standards, although maybe not saying it explicitly all the time. And the auto industry is arguing for a panoply of policies that would induce the spread of alternative fuels. One could be forgiven perhaps for saying that each industry is just trying to pass the buck, no?

MR. ZETSCHE: It's obvious that we are investing billions and billions of dollars into those new technologies, and that's true for General Motors.

There are so many studies that are proving that the least-efficient way -- the least CO2 you can save with the most money to be spent -- is doing it through the vehicle. And almost all other contributions -- from infrastructure to driving behavior to the biofuel -- are more efficient. And then when you go to housing and other areas, it's even much more efficient, so you get more reduction for [fewer] dollars.

At the same time, we accept our responsibility. In 2010, for instance, we will offer an S-class [large sedan] which goes 44 miles per gallon. It's a diesel with a mild hybrid, which goes zero to 60 in less than eight seconds. This takes a lot of technology and it costs a lot, but we are doing that.

MR. LUTZ: We have the 35-mile-per-gallon standard, and General Motors obviously is confident that we can meet that standard technologically, but when you add a diesel engine plus a hybrid, you are adding thousands of dollars of cost.

Ever since CAFE legislation has been in effect, General Motors has improved the efficiency of its truck fleet by 60%, the fuel efficiency of its passenger-car fleet by 100%, and fuel use in the United States has done nothing but go up. So the idea that by legislating 35 miles per gallon, we're somehow going to use less fuel, it would be the first time that it ever worked, because it inevitably results in people taking their fuel budget and buying a larger car. That's why if the customer is not in the equation in terms of feeling pain in the wallet from paying the fuel bill, it's destined not to work.

Now, technology costs money, so what is a better way to get at the problem of getting the automobile out of the environmental equation, or at least out of the petroleum and CO2 equation? I think the only rational thing to do is put less technology in the car, which is the conversion to making cars E-85 capable, and burn E-85, which is a renewable fuel that could be done from biomass.

And if you can do that for $150 a car, as opposed to meeting a 35-mile-per-gallon standard at many thousands of dollars per car, which one do you pick? It's not a question of passing the buck; it's just look at what we have to do to the cars to attain CAFE, versus the much less we'd have to do to cars, with much less pain on the American driving public, if we had a concerted national E-85 effort.

I really like that Lutz cites how previous legislation puts the responsibility on the automaker and doesn't do anything for the consumer. It's important to give people an incentive to use less gas instead of pressuring the car companies to do more. They've done a lot. Despite this, more fuel efficiency is good because it shows that we can do more with less. GM has shown us that they can produce a lot of power with less, and I'm sure we all appreciate that.

Lutz is also right about bioethanol. If we stop subsidizing so much, we can really change the way we fuel our cars. God only knows why the government didn't do anything about that when they decided that CAFE was a good idea.

I like what Zetsche said about diesel, but it could take a decade and a half for people to start accepting diesels as an alternative. You all remember the glory days of imports and the low-quality of American companies. To this day, GM and Ford suffer from the perception that imports are fundamentally better even though they strive to produce higher quality cars that compete on every level from comfort to performance. If diesel were already a growing part of the market, I could see GM and Ford investing in more diesel engines, but they won't see sales benefits for a while. I think GM should continue to focus its resources on technologies already in development that show real potential, like the Chevrolet Volt, FlexFuel, and expanding the lineup of hybrids. Consumers seem to be reacting very well to this.

So the idea that by legislating 35 miles per gallon, we're somehow going to use less fuel, it would be the first time that it ever worked, because it inevitably results in people taking their fuel budget and buying a larger car. That's why if the customer is not in the equation in terms of feeling pain in the wallet from paying the fuel bill, it's destined not to work.

That's why ethanol is the wave of the future. Take the foreign oil price gouging out of the equation and produce an alternative bio fuel at home here in the States. Then we can drive our cars as much as we want and be in the Green at the same time... Beautiful.

I'm glad he mentioned the subsidized farm land. No one seems to talk about all the corn farm that are paid not to grow corn. That should figure in. I wish he had talked a bit more about Cellulosic stuff.